Definition
Weighted-Average Anti-Dilution
Weighted-average anti-dilution adjusts an earlier investor's conversion price in a down round based on the size and price of the new issue, more mildly than a full ratchet.
This method recalculates the conversion price using a formula that weights the existing shares, the new (cheaper) shares and the amount raised, so the adjustment is proportionate rather than absolute. 'Broad-based' versions include options and convertibles in the share count, softening the impact further; 'narrow-based' versions are harsher.
Broad-based weighted-average anti-dilution is the market norm in Indian and global venture term sheets because it balances investor protection with fairness to founders, unlike the punitive full ratchet.
Related terms
- Down RoundA down round is a funding round in which a startup raises money at a lower valuation than its previous round.
- Anti-Dilution ProvisionAn anti-dilution provision protects investors from dilution if the company later raises money at a lower price than they paid.
- Down Round Protection (Full Ratchet)Full-ratchet anti-dilution resets an earlier investor's conversion price to the price of a later, lower-priced round, fully protecting them from a down round.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.